A trading account is usually prepared at the last accounting day. It shows the outcome of the entire business dealings within the financial year. The trading account reveals the gross profit or loss incurred by the entrepreneur. Gross loss is incurred when the cost of goods sold is higher than the returns from sales. The debit side of the trading account shows all the expenses and purchases made while the credit side of the trading account shows the net sales and the worth of the remaining stock at the end of the accounting year.
Salary, which is a direct expense is recorded on the debit side of the trading account. The gross profit or loss obtained from the trading account is moved to the profit and loss account.
